PSI Life Exam Practice Test

If an annuitant is making premium payments on a periodic basis, which type of annuity have they purchased?

1. Immediate

2. Deferred

3. Flexible

4. Fixed

The correct answer is: Deferred

The correct choice indicates that the annuitant has purchased a deferred annuity. This type of annuity accumulates funds over time through periodic premium payments made by the annuitant. The payments are invested with the intention of growing the account value until the annuitant decides to start receiving regular income payments at a later date. In contrast, an immediate annuity typically requires a lump-sum payment upfront and begins disbursing income payments almost immediately, usually within a month of purchasing the annuity. A flexible annuity allows larger or smaller premium payments at the annuitant's discretion but doesn't necessarily imply a specific timing for when income payments begin. A fixed annuity guarantees a specific rate of return, but it does not inherently mean that payments are made periodically; it can be structured in various ways. Therefore, the nature of the periodic premium payments directly aligns with the characteristics of a deferred annuity, where the growth of the funds takes place before any payouts commence.